MOODY’S Investor Service cut Portugal’s debt rating by two notches yesterday, saying its growth prospects were weak and it might need new austerity measures next year to hit tough fiscal targets.
The cut to A1, with a stable outlook, briefly sent the euro lower, but broad market reaction was relatively muted as Moody’s made up ground with rival agency Standard & Poor’s, which still rates Portugal two grades lower at A-.
“It doesn’t have the same impact as it would if the likes of S&P were to downgrade, given the move only brings (Moody’s) in line,” said Sean Maloney, rate strategist at Nomura.
S&P cut Portugal by two notches in April and put a negative outlook on its rating. The gap in the pace of ratings changes by the two agencies echoed their treatment earlier this year of Greece, another debt-burdened country on the Eurozone periphery. S&P cut Greece to “junk” status in April with Moody’s not following suit until June.
The premium investors demand to hold 10-year Portuguese bonds rather than safer German Bunds rose slightly, edging up five basis points to 290 bps from Monday’s settlement level.
Portugal’s finance ministry said the cut was expected and the stable outlook signalled Moody’s “confidence in the current economic policy strategy of the Portuguese government”.